Plea to Reduce Processor Cost

John Wyld, Past President of Cattle Council, father of NLIS, and apparently a leading cattle producer, has recently been quoted as saying that MLA should invest more producer levy money into research to aim at lowering beef processing costs.

He states, “This would allow processors to increase stock prices to producers”, and “the only way they (the processors) can compete at present is to drop the price of livestock”.

In a TicTacs only about 4-5 weeks ago, ABA showed what returns processors, (and the retail sector), were getting out of each animal killed. It was a significant return on investment!! And the one thing we all know is that processors (and retailers) have not returned one cent of their increased income to producers.

So, once again, someone thinks that grass fed producers should contribute a large part of their levies to aiding processors to cut costs, become more efficient……and no doubt, pass an enormous amount of that saving back to the producers. As this has never happened in the past, I wonder why processors and retailers would start now.

Producers: represented by an inadequate Cattle Council of Australia, receiving low returns for over 30 years, struggling with drought an any given time somewhere in Australia, have been ‘used’ by processors and retailers for eons, simply because of the arrangement their industry has with DAFF and the levies collected. That arrangement has left grassfed producers paying for every other sector’s R&D and marketing, while receiving nothing for themselves.

Producers don’t need John Wyld and the MLA planning to spend even more of their money to aid and abet other sectors in the industry.

Processors’ have their statutory levies are collected by the government collection unit, but sent directly to their peak body, AMIC. AMIC has full control of their money, and actually treat MLA like the service provider it is, as well as a ‘Bank’ that allows them access to producers’ funds. They clearly do not need to spend their own money on marketing or R&D as that is done for them by the full use of the grassfed levy money that MLA treats as their own, to be distributed to the most convincing, strong, and dare we say, most controlling, sector of the meat industry.

Are producers aware that processors refuse to contribute to MLA’s overseas marketing, as they know that fanciful marketing campaigns do not sell their meat? It is price, quality, quantity, and processors trading between their multi-nationally owned plants that sells their meat.

But many of the advantages the processors have when selling our meat, come from the expenditure of the producers’ levy. The image that MLA has correctly created of a clean, green, healthy and reliable product; and the fact that Australia’s vacu-packaging allows an extended shelf life that other countries have not been able to achieve, is a result of some of the ‘boasted about’ R&D that had been done. Proud achievements for sure, but remember some other pertinent facts:

Pointedly, of the 4000 odd research grants that have been paid for by MLA, less than 580 have ever been reported in their annual financials, and only about 260 have been completed. So 6% of MLAs R&D has been completed, and 94% of their research has not been reported on.

MLA has spent more than $200million in cattle producers’ levies on export marketing; and has spent more than $100million of cattle producers’ levies on domestic marketing.

Since its inception, MLA has spent more than $1billion of meat industry levy money.

This includes about $680million of levies paid by Grass Fed Cattle Producers, plus they have spent $700 million of taxpayers’ money in ‘$for$’ R&D government grants.

However, cattle prices have remained unchanged since the late 1990s. At the same time, producers’ costs have increased by at least 30%. In real terms, farm gate prices have declined more than 30% in the past decade

While you ponder that, think on this:

Are producers aware that despite being the highest payers into the Red Meat Industry, producers have no savings of their own? Processors, through their peak organisation AMPC, has retained earnings of $30 million plus. Cattle Council, supposedly a Peak Council, has no retained producer earnings and have no say over the $40m plus in Levy Reserves that MLA holds onto very tightly.

“Nobody is ripping anybody off”, says Mr Wyld. In a year when volume and price for Australian beef overseas has increased enormously, then consider this:

In the spring of 2011, MLA’s Eastern Standard Indicator suggested carcass beef prices went to $4.20 a kilogram, dressed weight; and by spring of 2013, the same indicator dropped below $2.90 kilogram. This would mean for a 300kg carcass the processor would have paid $390 less than in 2011, which is not a bad start!

In 2011 the Australian dollar was trading well over the US$. Now in 2013, it has come back to below the US$, therefore making a greater profit here in Australia for processors. Add to that, Australia is now receiving record prices for beef domestically and in overseas markets.

Processor returns are a tightly guarded secret and have been so since the growth of their industry. Interestingly, farmers have had, and will continue to have, their prices squeezed down. As this is happening, we have exporters, retailers and processors telling us of all the external factors as to why we as cattlemen have been getting these lower prices.

Meanwhile, producer have been tackling dwindling profitability by becoming more efficient and effective, though adopting better genetics, more innovation etc. Mostly at their own cost.

Perhaps we need to have some independent research done to see how all sections of the value chain compare with our major trading partners, then we can get some true bench marks.

For example: the USA, which competes with us in our premium markets, has breeding cows selling for $3000, and their prime cattle are bringing more than double what an Australian producers can expect for their stock.

Surely the time has come that we had a system where we get full disclosure of margins right through from gate to plate. But don’t expect MLA to undertake this sort of study as it is run by so many competing, differing businesses within the red meat industry, it cannot be independent or truly representative of the producer, whose money MLA is so fond of using extensively.